Strategy

Advanced Software Checklist: 4 Steps To Take Before Investing in ERP in Industry 4.0

The question for companies isn’t whether they have an ERP system in place, but whether their ERP system is compatible with the way they use information now and the way they want to use information in the future.

The arrival of Industry 4.0, or the fourth industrial revolution, signifies the next era in manufacturing, in which plants, processes, products and people come together in an entirely new way, enabling decentralized, autonomous decision-making on factory floors.

Sometimes used interchangeably with the “Industrial Internet of Things”—a term coined by GE CEO Jeff Immelt—Industry 4.0 refers to digitally connected manufacturing, characterized by “smart” factories and smart supply networks. Borne out of a confluence of technology advancements—from the Internet of Things to artificial intelligence to 3D printing—Industry 4.0 ultimately hinges on the ability to integrate data with physical processes across the entire value chain.

That’s where Enterprise Resource Planning (ERP) and Material Requirements Planning (MRP) comes in. ERP is a system for integrating a company’s data from all core business components into a single place to automate decisions and streamline operations.

The question for companies isn’t whether they have an ERP system in place, but whether their ERP system is compatible with the way they use information now and the way they want to use information in the future. Can your ERP software capture information from third-party systems? Can it process and contextualize data in real time? Can you easily add new features when you add new applications or business processes?

The answers to these questions aren’t one-size-fits-all. Most companies can orient themselves within a process continuum. One end corresponds to the repetitive and discrete and the other to the highly sophisticated and engineered-to-order. ERP software strategy should align with where the company falls along that spectrum and where they want to go, informing the level of technological sophistication required in the software and the level of discipline in planning.

For middle-market companies, investing in an ERP and/or MRP system can help manage resources, drive efficiencies and position them to more effectively compete with larger players with more resources. ERP may not be as “sexy” as artificial intelligence or robotics—but it’s a necessary precursor to embarking on any Industry 4.0 journey.

Here are four things manufacturers should do to maximize their investment in an ERP system:

Balance risk and reward along the complexity continuum

The more complex the process, the more rewarding it can be for operations and the bottom line to build and implement strategies for ERP systems to eliminate redundant systems and processes. And conversely, companies with complex operations can also experience more painful financial and operational consequences if they don’t do that well.

Understand what functionalities you need

ERP software can afford companies many benefits, including:

  • Managing compliance and regulatory requirements
  • Increasing inventory accuracy and materials planning
  • Increasing on-time deliveries
  • Enabling more efficient and meaningful reporting
  • Improving management decision-making
  • Improving customer service
  • Consolidating databases
  • Enabling a paperless factory

While even the smallest company can achieve all these benefits, it’s important to consider how ERP needs to work for your business and which vendor’s software will best position you to achieve your goals. Across the board, though, ERP can empower organizations to understand how they’ve historically sourced, made and distributed a product, as well as how they can repeat cost-effective processes and drive efficiencies across the entire enterprise.

Master the basics

The flashier and more sophisticated ERP software gets, the more companies will need to be mindful of how the tool can help them solve a specific organizational problem, or their investment could risk going to waste. Before investing in an advanced supply chain planning tool, for example, they need to master the basic modules. Mastery of the basics will be more critical than ever as we look toward the next technological advances—things like Industry 4.0 and widespread adoption of the Internet of Things and more data-driven business intelligence.

Clean up your data

Successful adoption of Industry 4.0 technologies is predicated on a disciplined process, clean data and organized teams. And at the core of ERP strategy and implementation is the integrity of an organization’s data. There are more opportunities for errors when machines cooperate autonomously with one another based on flawed data.

Because Industry 4.0 fundamentally changes the role of the operator, building systems that maintain the integrity of certain production processes without the same level of human oversight remains one of the main challenges to implementation. If the underlying data or data analysis has errors, the automated decision-making based on that data will be riddled with errors too. This means ensuring data is clean, accurate and accessible as part of an overall information governance strategy. Just as a contractor wouldn’t build over a cracked foundation, embracing technological advancements without the right fundamentals of information governance, IT strategy and analytics capabilities could result in a flawed execution.

With these fundamentals in place, ERP can be a useful tool for middle market companies looking to save on time and material costs and drive efficiencies enterprise-wide. And as Industry 4.0 becomes a reality for more manufacturers, smart, strategic use of ERP software can help middle market companies leverage those benefits to maintain their competitive edge.

Eskander Yavar is the national leader of BDO’s Management Advisory Services. To learn more, register today for FEI’s 2017 Financial Leadership Summit. Yavar’s presentation, “Industry 4.0 and BlockChain and the Internet of Things” will focus on understanding where your company stands in the innovation cycle.